Turmoil in mortgage market hits renters in the wallet
As the credit crunch shakes up the mortgage market, one group that’s suffering some severe collateral damage doesn’t own a home at all: renters.
Already, one in four renters are paying more than half their income on rent – the highest level in at least two decades – according to a study released by the Center for Housing Policy. That’s up from one in five renters in 1997.
And the squeeze on renters will probably get worse.
Rents are projected to rise about 4 percent this year and next. In part, that’s because of a shortfall in apartment construction. At the same time, more renters are renewing their leases because they can’t qualify for a mortgage. And rising foreclosures are turning some homeowners back into tenants.
“The period we’re looking at in our report (through 2005) is really the calm before the storm,” says Barbara Lipman, research director at the center, the research arm of the National Housing Conference, a housing advocacy group.
Lipman says she thinks the affordability crisis for renters is growing: “It’s hard to see a bright spot on the horizon here, unless there is a concerted effort to produce more affordable housing.”
Part of the problem is that construction of non-subsidized apartments fell by half from 1997 to 2006, a report this week by the National Association of Home Builders found, as developers switched to building condos. And while many condos are being converted to rentals, they aren’t enough to meet the demand.
The rise in foreclosures is the main reason the proportion of people moving into apartments from April to June this year was the most for any quarter in more than two years, according to Marcus & Millichap Real Estate Investment Services.
One bright spot: Foreclosures are prompting some landlords to liberalize the way they handle rental applications from people who have lost their homes.
Tom Beaton, a vice president at Dolben, which manages apartments in the Northeast, says he’ll now accept tenants who have lost homes through foreclosure but who otherwise have good credit.
“In prior times,” Beaton says, “a foreclosure on a credit score would have been rejected.”
At his properties, renewals from tenants are up 10 percent because fewer can or want to buy a home now, he says.
“What you’ll see first is an increase in occupancy, and depending on the impact it has, there could be the potential for an increase in rents or a reduction in concessions over the next 12 months,” Beaton says.
Copyright 2007 USA TODAY - WASHINGTON – Aug. 31, 2007